In spite of the reasonable economic conditions and profit growth achieved around the globe in 2018, it was also a very volatile and unrewarding year for investors. Major share markets experienced a correction in February 2018, due to expectations of inflation in the US, but later began to adjust in line with the US Federal Reserve’s expectations of raising interest rates.
While traditionally December has been a seasonally good month for shares, this year was a major exception, with one of the most significant December declines since the great Depression. Inflation pressures, geopolitical tensions, and the US-China trade war were some of the key concerns that led to a volatile last quarter.
The US Federal Reserve increased interest rates again in December, however reduced their guidance on expected future rate rises from 3 to 2, which was well received by the market. This move is expected to slow down the strengthening of the US dollar and potentially be a boost to Emerging markets. European growth has continued to slow down due to political uncertainty, particularly as the UK is due to leave the European Union on 29th of March 2019. On a positive note, the unemployment rate has continued to decrease in the UK and European region, indicating reasonable economic conditions.
Domestically, our sharemarket echoed global markets in the last quarter with the ASX 200 posting a negative return. The property market downturn has continued and has had an impact on retail sales. The Reserve Bank of Australia is expected to keep interest rates on hold for now, however the chance of a rate cut in the future is increasing.
Markets are showing positive signs since the start of this year, as the US-China trade talks are progressing well. Fundamentals are still supportive to the markets but there are some head winds such as trade talks, political uncertainty and policy risks which could see the market react negatively.
|Economic indicators – 11 January 2019
|1 year % excluding dividends
|Australia: ASX 200
|China: CSI 300
|UK: FTSE 100
|US: S&P 500
|Australia: Rates at 11 January 2019
|Official interest rates
|Aus 10-year bond yield
Published : 30 Jan 2019